No. 88-72 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1988 

LITTLE HORN STATE BANK, 

Plaintiff and Appellant, 

-vsTHOMAS J. MILL and SHARON MILL, 

Defendants and Respondents. 

APPEAL FROM: District Court of the Thirteenth Judicial District, 

In and for the County of Big Horn, 

The Honorable William J. Speare, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Bert W. Kronmiller and James E. Torske, Hardin, 

Montana 

For Respondent : 

Moulton, Bellingham, Longo & Mather; Ward Swanser, 

Billings, Montana 

m~ 2 3 1988 

Filed: 

Submitted on Briefs: June 22, 1988 

Decided: August 23, 1988 
Mr. Chief Justice J. A. Turnage delivered the Opinion of the 

Court. 

Plaintiff Little Horn State Bank appeals the September 

8, 1987, bench judgment of the Thirteenth Judicial District 

Court, Big Horn County. After trial, the court dismissed the 

Bank's action on its merits. The court concluded that defendants Thomas and Sharon Mill had a superior claim to the 

heating system and exhaust fan which the Mills removed from a 

building mortgaged by a third party to the Bank. We affirm. 

The players in the proceedings that gave rise to this 

case are appellant, Little Horn State Bank (~ank), respondents, Thomas J. Mill and Sharon Mill (Mills) , Gary C. Davis 

and Patricia C. Davis (Davises) and Ruf Cut, Inc., a corporation (Ruf Cut) , in which Mills were the sole shareholders. 

Facts relevant to this case reveal that on April 28, 

1980, Mills gave to Bank a real estate mortgage on property 

in Big Horn County, described in Certificate of Survey 293, 

to secure a loan of $81,516 for the purpose of enabling Mills 

to construct a building thereon to be used as a roller skating facility. 

On July 7, 1980, Thomas J. Mill gave the Bank a security agreement, evidenced by a financing statement, to secure a 

loan of $30,000 for the purpose of enabling Mills to acquire 

personal property to be used in the roller skating facility. 

The security agreement covered personal property, including 

the Co-Ray Vac heating system and exhaust fan installed in 

the building located on the real property described in Certificate of Survey 293. The heating system was installed by 

hanging it to the ceiling of the building by a series of "J1' 

hooks and suspended by wires. The exhaust fan was put in 

place by four lag screws. On December 31, 1981, Mills paid 

off the $30,000 loan. 
Sometime prior to April 13, 1984, the Mills were 

experiencing financial difficulty in meeting their obligations under the April 28, 1980, mortgage and were seeking a 

buyer for the roller skating facility. The Bank agreed to 

finance the Davises as buyers. 

On April 13, 1984, the following events occurred and 

were concluded in the office of a Hardin attorney, who drafted the relevant documents as attorney for the Bank and the 

Mills. The record does not disclose if the Davises were 

represented by an attorney. These documents were all filed 

or recorded in Big Horn County in the following sequence: 

1. A financing statement, Davises as debtors and Mills 

as secured parties, listing personal property, including the 

heating system and exhaust fan. 

2. Deed to the real property described in Certificate 

of Survey 293 (the roller skating building), Mills as grantors and Davises as grantees. 

3. Satisfaction of Mills/Bank mortgage of April 28, 

1980. 

4. Termination of financing statement dated July 7, 

1980, Thomas J. Mill to the Bank, which had been paid off 

December 31, 1981. 

5. Real estate mortgage dated April 13, 1984, mortgaging the property described in Certificate of Survey 293 (the 

roller skating building) in the amount of $101,911.05, Davises as mortgagors and the Bank as mortgagee. 

On the same date, April 13, 1984, the Davises and Mills 

entered into two agreements: 

1. Document entitled "contract for deed," Ruf Cut as 

seller (the corporation in which Mills are sole stockholders) 

and Davises as buyers. In this document Mills agreed to sell 

and buyers agreed to buy for $25,000, with $8,000 as a down 

payment and the balance of $17,000 plus interest to be paid 
no later than April 13, 1986, real property adjacent to the 

real property described in Certificate of Survey 293 (the 

roller skating building but separate therefrom) and personal 

property used by Mills in the roller skating rink enterprise. 

The "contract for deed" referenced personal property described in a schedule attached thereto; no schedule was 

attached to the copy introduced in evidence at the trial. 

However, in the financing statement dated April 13, 1984, a 

detailed specific list of personal property was contained, 

and we construe this document and the "contract for deed" 

together. 

2. Financing statement filed April 13, 1984, in Big 

Horn County, Mills the secured parties and Davises debtors. 

This document contains a detailed list of personal property 

sold by Mills to Davises relating to the roller skating 

business and specifically includes the said heating system 

and exhaust fan. The place of filing is not an issue in this 

case. 

The "contract for deed" of April 13, 1984, provided 

that sale documents, including a deed to the real property 

and a bill of sale for the personal property, were to be held 

in escrow at the office of the Hardin attorney who had drafted them and that in the event Davises failed to pay the 

purchase price, the deed and bill of sale were to be redelivered to Mills as sellers. 

The "contract for deed" further provided that in the 

event of Davises' default, after notice, Mills had the right 

to terminate the contract and Davises were to return possession of the real and personal property to Mills and Davises 

as buyers would have no further interest therein. 

Davises defaulted, notice was given, and on May 14, 

1986, Davises delivered possession of the real and personal 

property under the "contract for deed." to Mills. 
On July 7, 1986, Davises and the Bank entered into an 

agreement and release whereby Davises agreed to deed and did 

deed the real property described in Certificate of Survey 293 

(the roller skating building and land where it is situate) in 

consideration of the Bank satisfying the mortgage debt, then 

amounting to $103,256.81. 

In May 1986 Mills offered to sell the heating system 

and exhaust fan to the Bank. The Bank declined the offer and 

advised Mills that the Bank claims the property as fixtures 

pursuant to its mortgage of April 13, 1984, given to them by 

Davises. Mills took possession of the heating system and 

exhaust fan, removing them from the roller skating facility, 

and the Bank sued. 

We state the determinative issue in this case to be: 

Did the District Court err in concluding that the claim of 

the Bank under its mortgage of April 13, 1984, to the heating 

system and fan as fixtures in the mortgaged premises was 

inferior and subject to the right of Mills in this property? 

The answer to this issue is dependent upon who owned 

the personal property in dispute at the time Davises gave 

their mortgage of April 13, 1984, to the Bank. 

The District Court findings of fact and conclusions of 

law, in their essential part, concluded that Mills were at 

all times the owners of the personal property and never 

transferred ownership to Davises. The District Court concluded that the Bank obtained no more interest in the personal property than the interest held by Davises. We agree and 

affirm the District Court's judgment for the respondents. 

The record discloses that the Bank, at the time it 

loaned Mills the money to acquire the disputed personal 

property, secured the loan by a security agreement further 

evidenced by a financing statement. When Mills paid this 
loan, they were the owners of the personal property, 

unencumbered. 

The undisputed testimony of Thomas J. Mill is that the 

Mills and the Davises intended the disputed personal property 

to remain as such and that it was not intended to be a fixture in the building purchased by the Davises from Mills. 

This testimony is further supported by the "contract for 

deed" and financing statement executed by Mills and Davises 

wherein the personal property is bargained for and sold 

separate from the roller skating building and real property 

deeded to Davises and upon which the Bank's mortgage was 

taken. 

The interest that Davises may have had to the disputed 

personal property on April 13, 1984, and which may have been 

mortgaged to the Bank was that derived from a contract for 

deed. Before such interest could ripen into an interest the 

Bank may claim under its mortgage to be superior to the 

interest of Mills, an essential condition precedent had to 

occur--Davises would have had to complete payment to Mills 

under the terms of their purchase contract. They failed to 

do so, and with this failure, any claim of the Bank as superior to Mills also fails. 

Our holding on this issue resolves this case, and it is 

unnecessary to discuss any other issues raised by appellant. 

Affirmed. 

Chief Justice 
We concur: 

Justices